Block Decomposition of Price Multipliers in a SAM Framework for Malta
Adrian Theuma, Kevin Abela
Adrian Theuma (email@example.com)
Price Multipliers, Price Decomposition Effects, SAM-Price Model, Social Accounting Matrix
A social accounting matrix can be utilised to model prices, providing a deeper understanding on price effects linked to intersectoral linkages, wages costs and cost-of-living adjustments. The objective of this article is to estimate price multipliers and their decomposition effects for the Maltese economy, based on the 2010 micro social accounting matrix. The estimated price multipliers follow the methodological framework proposed by (Roland-Holst and Sancho (1995). The aim is to capture all existing price multiplier effects which are embedded within the entire circular flow of income and expenditure. This paper presents the first block decomposition of price multipliers locally with the objective to estimate and distinguish between transfer, open-loop and closed-loop effects. Therefore, this paper provides additional insight on tracing the different price effects following exogenous cost injections. Findings portray that the effects on production activities following injection in the same production account is dominated mainly by transfer effects. However, the price multiplier effects on endogenous accounts following an injection in production activities would result in mainly open-loop effects. The effects of higher wage costs on production activities and households are mainly dominated by open-loop effects, followed by induced effects. The estimated price multipliers can be utilised for policy formulation but are subject to the traditional input-output framework assumptions. However, the estimated price multipliers provide a first cut estimate of assessing price effects in terms of intermediary input costs, wages costs and cost-of-living adjustments following exogenous cost changes.